With the extension of lockdown, many companies are struggling financially and freeing up capital may be a necessity to keep their businesses operational.
According to Spire Property Solutions, one way of doing this is through a sale and leaseback deal.
CEO, Greg Huntingford says that they have noticed a recent increase in these types of deals, and they expect it to be an ongoing trend in the coming months.
He says that in a typical sale-leaseback transaction, a property owner sells their owner-occupied building to an investor and at the same time, secures a long-term lease commitment.
“This allows the owner company to access liquid capital that would have otherwise been tied up in its real estate and redeploy this immediate cash flow to ensure business survival,” explains Huntingford.
“In many cases, a far greater return than the capital invested in a property can be achieved when employed in an operating business.”
“Businesses who go this route also enjoy a substantial reduction in interest-bearing debt, an improved balance sheet, improved profitability and reduced risk due to fixed future occupational costs. Sale and leasebacks offer a good alternative to traditional bank financing, and often it is a much faster process than banking approvals allow. Bridging finance can also be arranged to further speed up access to capital.”
While sellers are looking to free up capital to reinvest in their business, deals such as these have appeal for investors who are not drawn to the inevitable appreciating value of the property but also, the stable and predictable returns offered through long-term leased real estate with annual increases which can provide a hedge against inflation.
“The sale lease-back trend has been apparent abroad for some time and going forward we suspect the number of companies interested in pursuing this will undoubtedly increase,” concludes Huntingford.
